Operating Segments (Ind AS 108): formula sheet

Key formulas

Core principle (para 1)

Disclose information so users can evaluate: (i) nature and financial effects of business activities + (ii) economic environments in which the entity operates

Quote or paraphrase this in any objective question. Both limbs matter.

Scope in India (para 2)

Applies to companies to which Ind AS notified under the Companies Act apply

IFRS 8's public-market wording is deleted in Ind AS; applicability comes from the Companies Act and its Rules.

Voluntary disclosure (para 3)

Entity not required to apply Ind AS 108 + non-compliant segment disclosure = must not call it 'segment information'

Labelling restriction, not a ban on disclosing.

Consolidated vs separate (para 4)

Report with consolidated + parent's separate statements → segment information only in the consolidated statements

Applies when the parent is within the scope of the standard.

Matrix organisation (para 10)

Two overlapping sets of components reviewed by CODM → choose the set by reference to the core principle

Product lines versus geographical areas is the textbook example.

Definition of operating segment (para 5)

Operating segment = business activities (revenue and expenses) + results regularly reviewed by CODM for resource allocation and performance + discrete financial information available

All three conditions must be met. Failing any one means the component is not an operating segment.

CODM (para 7)

CODM = the function that allocates resources to, and assesses performance of, the operating segments

It is a function, not a title. It may be the CEO, COO or a group of executive directors.

Segment manager (para 9)

Segment manager = function directly accountable to the CODM, in regular contact on operations, results, forecasts or plans

Not necessarily a specific title. One manager can cover more than one segment.

Internal transactions (para 5(a))

Revenues and expenses of a segment include transactions with other components of the same entity

A component selling only internally can still qualify as an operating segment.

Matrix or multiple report sets (paras 8, 9, 10)

Choose the set of components identified by the core principle, using nature of activities, existence of responsible managers and information given to the board

If only one set has responsible segment managers, that set forms the segments.

Aggregation test (para 12)

Aggregate if: core principle met + similar economic characteristics + similar in (a) products/services, (b) production processes, (c) customers, (d) distribution, (e) regulatory environment if applicable

All conditions must hold. Aggregation is optional, not compulsory.

Quantitative thresholds (para 13)

Report separately if: revenue ≥ 10% of combined revenue of all segments, OR |profit or loss| ≥ 10% of the greater of combined profit of profit-making segments and combined loss of loss-making segments, OR assets ≥ 10% of combined assets

Revenue includes intersegment sales. Meeting any one test is enough. Applied to segments after any aggregation.

Combining small segments (para 14)

Combine below-threshold segments only if: similar economic characteristics + majority of para 12 criteria shared

A lighter test than para 12. Only for segments that do not meet any threshold.

Disclosure of aggregation (para 22(aa))

Disclose: judgements made, brief description of aggregated segments, economic indicators assessed

Also give the basis of organisation and types of products and services under para 22(a) and (b).

Revenue test (para 13(a))

Segment revenue (external + intersegment) ≥ 10% × combined revenue of all operating segments (external + internal)

Both sides include intersegment revenue.

Profit or loss test (para 13(b))

|Segment profit or loss| ≥ 10% × greater of (combined profit of profit-making segments, combined loss of loss-making segments in absolute amount)

Use absolute values. Compute both totals and pick the larger.

Asset test (para 13(c))

Segment assets ≥ 10% × combined assets of all operating segments

Passing any one of the three tests makes the segment reportable.

75% test (para 15)

Total external revenue of reportable segments ≥ 75% × entity revenue

If less, add more segments until at least 75% is reached. Para 15 allows this even if they fail para 13.

Other segments (paras 13, 14, 16)

Below-threshold segments: may be reported if management finds them useful; may be combined only with similar small segments; the rest go to 'all other segments'

Describe the sources of revenue in 'all other segments'.

Revenue reconciliation

Total segment revenue ± unallocated amounts − inter-segment eliminations = Entity revenue

Paragraph 28(a). Segment revenue includes inter-segment sales if the CODM measure does; they are eliminated to reach entity revenue.

Profit or loss reconciliation

Total segment profit or loss ± unallocated items ± policy differences = Entity profit before tax and discontinued operations

Paragraph 28(b). If tax is allocated to segments, you may reconcile to profit after those items instead.

Assets reconciliation

Total segment assets + unallocated (corporate) assets − eliminations = Entity assets

Paragraph 28(c), when segment assets are reported.

Liabilities reconciliation

Total segment liabilities + unallocated liabilities − eliminations = Entity liabilities

Paragraph 28(d), when segment liabilities are reported.

Measurement rule

Segment amount = measure reported to the CODM

Paragraph 25. Allocations are included only if the CODM's measure includes them, and must be on a reasonable basis.

Multiple measures

If CODM uses more than one measure, report the one most consistent with Ind AS measurement

Paragraph 26. If only one measure is used, report that measure.

Interest presentation

Interest revenue and interest expense reported separately

Paragraph 23. Net presentation is allowed only if most of the segment's revenue is interest and the CODM relies primarily on net interest revenue; disclose that you have done so.

Applicability (para 31)

Paras 32–34 apply to all entities, including single-segment entities

Give the information only if it is not already provided in the reportable segment information.

Products and services (para 32)

Report external-customer revenue for each product/service or group of similar products/services

If information is unavailable and the cost to develop it would be excessive, disclose that fact instead.

Geographical revenue (para 33(a))

External-customer revenue: (i) country of domicile (ii) all foreign countries in total; show an individual foreign country separately if material

Also disclose the basis for attributing revenue to individual countries.

Geographical non-current assets (para 33(b))

Non-current assets located in (i) country of domicile (ii) all foreign countries in total; show a material foreign country separately

Exclude financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts.

Major customer test (para 34)

Revenue from a single external customer ÷ entity revenue ≥ 10%

Disclose the fact, the total revenue from each such customer, and the segment or segments reporting that revenue. Identity of the customer and segment-wise amounts need not be disclosed.

Single customer (para 34)

Entities under common control = one customer

For governments and entities under their control, judgement is needed, considering the extent of economic integration.

Restatement rule (para 29)

Composition of reportable segments changes → restate earlier periods (incl. interim) unless information not available AND cost to develop it excessive

Both conditions must hold for the exemption. The test is made for each individual item of disclosure.

Fallback if not restated (para 30)

No restatement → disclose current period on old basis AND new basis (unless not available and excessive cost)

Required in the year in which the change occurs.

Disclosure of restatement

State whether corresponding items of earlier periods have been restated

Required after any change in composition of reportable segments.

Major customer test (para 34)

Revenue from a single external customer ≥ 10% of entity's revenue → disclose

Disclose the fact, total revenue from each such customer and the segment(s) reporting it. Customer identity need not be disclosed. Entities under common control count as one customer.

Practical limit on segments (para 19)

Reportable segments above ten → consider whether a practical limit is reached

No precise limit is set. It is a point to consider, not a hard cap.

Quick revision

• Reportable segment test: any one of three 10 per cent thresholds is enough.
• Revenue test uses reported revenue including intersegment sales, against combined internal and external revenue of all operating segments.
• Profit test uses absolute profit or loss against the greater of combined profit of non-loss segments and combined loss of loss-making segments.
• Asset test: 10 per cent or more of combined assets of all operating segments.
• If reportable segments' external revenue is below 75 per cent of entity revenue, add more segments until at least 75 per cent is covered.
• Aggregation needs similar economic characteristics and similarity in each listed respect, plus consistency with the core principle.
• Non-reportable segments go into an all other segments category, with revenue sources described.
• A segment reportable last year may continue to be reported if management judges it of continuing significance.
• A newly reportable segment requires restated comparatives, unless information is unavailable and the cost is excessive.
• Consider whether a practical limit has been reached when reportable segments rise above ten.
• Major customer: 10 per cent or more of entity revenues; disclose that fact, the amount and the segments, but not necessarily the identity.
• Entity-wide disclosures apply even to entities with one reportable segment, only if not already given in segment information.

Common mistakes

• Saying Ind AS 108 applies only to listed entities because IFRS 8 mentions public markets. Fix: Remember the IFRS 8 scope wording is deleted in Ind AS. Applicability follows the Companies Act and Rules for Ind AS.
• Requiring segment information in both consolidated and separate statements of the parent. Fix: When both are in one financial report, paragraph 4 requires it only in the consolidated statements.
• Treating CODM as a named post such as the Managing Director only. Fix: Paragraph 7 says it is a function. Identify whoever allocates resources and assesses segment performance. It may be a group of executive directors.
• Saying a component with no external revenue cannot be a segment. Fix: Paragraph 5(a) includes revenues and expenses from transactions with other components of the same entity. Also, start-ups may qualify before earning revenue.
• Saying segments must be aggregated if they are similar. Fix: Paragraph 12 says segments may be aggregated. It is a choice, and only when all conditions are met.
• Aggregating when only some of the five criteria match. Fix: Under paragraph 12, similarity is needed in each criterion. The majority test applies only to below-threshold segments in paragraph 14.
• Using only external revenue in the 10% revenue test. Fix: For the 10% revenue test, use revenue including intersegment sales on both sides. Keep external revenue for the 75% test.
• Taking total net profit of all segments as the profit-test base. Fix: Compute combined profit of profit-making segments and combined loss of loss-making segments separately. Use the greater absolute amount.
• Remeasuring segment profit under the entity's accounting policies Fix: Use the CODM's measure (paragraph 25). Show policy differences as reconciling items.
• Disclosing segment assets and liabilities in every case Fix: Profit or loss is always reported. Assets and liabilities only if regularly provided to the CODM (paragraph 23).

Exam tips

• Learn the core principle almost word for word. It is a favourite for short notes and MCQs.
• In scope questions, mention that IFRS 8's public-market wording is deleted in Ind AS and applicability comes from the Companies Act and Rules.
• For consolidated versus separate statements, answer in one clear line: consolidated only, per paragraph 4.
• In case scenarios, end with a firm conclusion on who reports, where, and under what label.
• Write paragraph numbers only for those you are sure of: 1, 2, 3, 4 and 10 are covered here.
• In MCQs, watch for options that call CODM a 'title' or always the board. The correct view is that it is a function.
• Quote paragraph 5 conditions (a), (b) and (c) in descriptive answers. Marks are given for testing each one.
• In case scenarios, find who actually allocates resources and reviews results. Use that, not the designation in the facts.